Welcome to the Nobia Q4 report 2021. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-answer session. Today, I'm pleased to present Tobias Norrby, Head of IR. Please go ahead with your meeting.
Thank you. Thank you everyone for calling into this Q4 2021 results presentation by Nobia. We will go the usual way today, starting off with an overview by our President and CEO, Mr. Jon Sintorn. Then Mr. Kristoffer Ljungfelt [CFO & EVP] (Nobia), will dive into some of the financials. For COVID reasons today, we are in different places over here, just so that you know that. With that, Jon, please go ahead.
Thank you, Tobias Norrby. Good morning, everybody. Let's start with the first slide, which is slide number two, talking about some highlights from last year, 2021, some major events. The starting point is a very positive one. We have, for the first time, had a Nordic EBIT exceeding SEK 1 billion, which is 10% organic growth. That was on the back of a strong growth in retail, and we also with that have a strong order book going into 2022. There is a strong, good momentum in the Nordics. Another highlight, Central Europe, stable over 10% margin.
It's on the back of a successful Bribus integration, the company that we have in the Netherlands, but also a good job done in the turnaround within Austria with the ewe brand, and we can call it completed. Stability in terms of profitability in Central Europe. We get into the U.K. U.K. is back on profit after the challenging 2020. There is also further improvements that have been initiated. During last year, as you know, there was a high market volatility due to the corona lockdowns and on the back of some of the Brexit turmoils. Throughout the year, the project business specifically in social housing and the premium projects in London, the climate for that has been very, very challenging. In projects, we're 50% down compared to 2019.
What we have seen, though, is that our trade efforts is paying off. This is the sixth consecutive quarter, Q6 in a row we've had growth in the trade segment. Trade has been more resilient to the market volatility. What we also have done is that we have a new Magnet management team in place, and we have introduced several new products such as Nordic Nature and more features in terms of color. On the back of that, we have initiated more of a focus on the Magnet business. More of that a little bit later into this presentation. Another big theme in the course of 2021 is in the supply chain.
As you've seen, not only in our industry, but in most industries across, there has been a high cost inflation in direct material manufacturing and logistics, and availability of various components have issues or have been challenging. We have been able to produce, we have been able to deliver, so we haven't had any stop in the factories, even though it has been obviously challenging, but we haven't had any stops. We have been able to deliver with a lot of efforts. Also for the most part, for 2021, we've been able to compensate to have the higher average order values. As we communicated before, not fully during 2021, but we expect that to recoup in the course of the Q1 of this year, 2022.
That was a few things with regards to the summary on 2021. Let's have a look at the Q4 . Well, at large, the Q4 continues on the same trend that we have seen throughout the year. It's the same story. Net sales increased to SEK 3,509 million versus SEK 3,450 million the previous year. The organic growth is 3% adjusted for the Benchmarx exit, a little bit more on that later on. We've had continuous strong growth in the Nordic region, adding up to 11% organic growth, as throughout the year, a slow recovery of projects and retail in the U.K. We are going into the important winter sales campaign with a good momentum.
Cost inflation was compensated by higher average order values. For the, you know, across, we've done a good job and been. I'm not gonna say early, but early in initiating price increases on the back of the cost inflation. As I said, product availability remains challenging, but slightly improved. It has been an improvement of the situation overall, but it's still challenging. As I said, we haven't had any stops. The EBIT is adding up to SEK 238 million. Then also compared to last year, SEK 295 million, we have to remember that last year was fueled by opening up of restrictions in Central Europe and the Nordics, which is...
If anything, if not complete opposite, but at least it was hampered this year with some restrictions put in place rather than opening up, this Q4 . In terms of the balance sheet, it is a solid balance sheet, and that will enable us to invest in growth and efficiency. On the back of the strong balance sheet and cash flow, we propose to increase the dividend to SEK 2.50 per share compared to 2 SEK last year. At the same time, that enables us to have good financing opportunity for investment in a strategic agenda as well as acquisitions such as Superfront. That was on the Q4 . Moving on to slide four, a brief summary of the kitchen market development. Also pretty much the same trend as we've seen throughout the year.
Nordic market, solid housing markets, consumer confidence continues to support retail sales, and project demand is now slightly up. In the U.K., more of a mixed picture. The trade segment is growing, while retail and consumer is more stable and then continues London project market and social housing remaining weak. Central Europe, there is a good underlying demand, but in the Q4 , we have had corona restrictions impacting the markets. Moving on to slide number five. This is our framework, the Tomorrow Together strategy, and I will touch on a few things going on, specifically on its own slides, a little bit around the U.K., our new factory in Jönköping, as well as acquisition of Superfront.
Starting out with this framework, a few things going on, we can mention in the sustainability and design leadership ambitions, I'm very pleased to see how the Nordic Nature product have been introduced in our markets. Also a fairly new campaign we called RE:NEW from Marbodal, working on the enhancing our marketing and information with regards to our sustainability agenda. It's called RE:NEW: renew, recycle, reuse, et cetera. That's a good initiative. If we look at the growth initiatives, we can really see in the consumer retail space that our efforts and ambitions and introductions of paint on various color, as one example, really is paying off.
That's something that is, we're doing really well, and it's a good momentum on those type of products throughout the markets. Let's move in and look at targeting profitable growth in the UK. As you have heard us say multiple quarters, it has been a volatile market, and the project sector has been very difficult for us. We are now, or we have initiated an increased focus on the Magnet brand. The Magnet brand and the Magnet business will, let's call it, be the core of our business in the UK as a kitchen specialist. We have exited unprofitable business, such as Benchmarx and categories within Rixonway Kitchens and some other business. We have focused on the long-term partners such as Wickes.
That part of our business, we've done a major step forward, improving our profitability. There is still some ways to go in terms of parts of the project business. One piece is obviously market-related. In the London property market, the demand is not back to the levels which we used to see in advance of the pandemic. There is also things, as well as in social housing segment. There are pockets in other project businesses which is not up to speed yet. We will need to review these businesses and have a look at how we are managing, let's call it, the cost structure adjusted for the way the future that we believe we will enter into. There will be a review of the project business.
With that said, there are healthy segments, and we will focus on those healthy segments in the project business with private developers and house builders and so on. We will be leading for the most part with the Magnet brand. As I mentioned, we have a new management team. We have introduced some new products, Nordic Nature, a wide variety of color, and some other things. Let me already now say that some of those things we are starting to see in effect. I would like to emphasize that the current winter sales campaign, the current winter sales period, we are performing very well. There is a momentum in the Magnet business as we speak. Moving on next, a big item on our strategic agenda is obviously the building of a new factory in Jönköping.
The site preparation, piling, casting of foundations, lots of stuff has happened in that area. The first section of the production building is now under construction, and we're starting to see walls being put on that structure as well. We are progressing on time and on budget in this project. Well, we are also ordering a lot of production equipment. As you see on the slide below, there is some equipment now being built to be shipped later on obviously to the factory. There is a lot of momentum also here, and as I said, we are progressing according to plan in terms of time and in terms of budget.
Early this year, we made an acquisition of the company Superfront, a European online kitchen and storage brand with a strong digital marketing and social media presence. There are frontals, handles, legs, et cetera, with a high design content, and an upcycling business model. The turnover is SEK 65 million with a double-digit margin, and we really see it as a good opportunity for this company to grow and expand as a part of the Nobia group. That also brings consumer design elements, more of bespoke possibilities into our group as well. This is a really exciting acquisition, and also exciting in the ways how we can further communicate and have a dialogue and have interactions with our customers online. That's a nice acquisition. Excited to bring that forward.
With that overview, I hand over to Kristoffer.
Thank you, Jon. Let me run you through the financials for the Q4 , first of all, for the Nobia group. As you know by now, the organic growth was flat in the quarter, but with a big mix between the different regions, whereas the Nordics was growing 11%, U.K. was declining 14%, and the Central Europe was declining somewhat. Gross margin slightly down 0.2 percentage points, driven by a margin decline in the Nordic region, while the U.K. improved considerably on the back of the Magnet business. EBIT of SEK 238, again below last year, but mainly on the back of inflationary pressure and lower volumes in the U.K. All in all, a margin of 6.8%. Moving to next slide, please.
Then just an update on the direct material and our ability to price for it. As you know, the inflationary pressure has continued in basically all parts of our business. But on a positive note, the availability issues that we had in the beginning of the quarter have improved considerably towards the end of the quarter. Even though there are still some challenges in certain areas of the supply chain, we are increasingly optimistic about this fact. As previously communicated, we are fully committed to pass on all material price increases to the consumers at the end. Judging by our order book, we can see the higher prices coming through already by the end of Q4 and into Q1 2022. As such, we believe higher order values will fully compensate for the inflation during 2022.
Having said that, we still do not rule out that we will do further extraordinary price increases during the year ahead, given the current situation. Moving on then, and looking at the split of sales by country and by segment. If we start with Denmark, we have a very good momentum here continuing, with the underlying strong market condition and double-digit growth in all segments. We also have good growth on the back of successful product launches and improved average order values. Sweden has similar situation with double-digit growth in all segments.
Very strong retail campaigns continue, and we believe we are taking share with the customized painted products. Availability of paints and paint capacity has been difficult during the H2 of 2021, and it has resulted in higher costs for our manufacturing and for Tidaholm, but we can see that that is evening up somewhat. Norway, Finland, together 16%, had lower project sales in Q4, but we can finally see that the order book is picking up in both countries again on the back of solid housing starts. Both markets have had a good growth in retail, however, not to the extent that we have seen in Denmark and Sweden.
All in all, very good momentum in the Nordics driven by volume and higher order values and also better segment mix, which has resulted in the healthy order book going into 2022 as Jon was alluding to. Central Europe, Netherlands, and Austria, 11% of sales had a softer sales period in Q4, mainly due to COVID restrictions hampering deliveries and harder comparables from last year. This year was hampered by lockdowns and quite high sickness rates in the quarter, and it has been difficult to keep the construction sites running normally, which impacted our deliveries of kitchens, and many of these orders have been moved into the next year, meaning 2022 then. Also the store networks and supply chain have been impacted somewhat during the quarter.
If we then double-click on U.K., which is now 36% of our sales, we can see that Magnet Trade has outgrown Magnet Retail, which is very much in line with our strategy. We grew yet another quarter in the trade segment, and we're also good at defending our higher price points, even if some competitors undercap on price, which had an impact on our volume. The retail market was still soft in the quarter, and availability of logistics and installers in the beginning of the quarter impacted dispatch. Market prices picked up a little bit towards the end of the quarter, and the market as such continued to build in front of the important winter sales period that started in December.
As Jon was talking about, the product business has been problematic throughout the pandemic, with volumes being down over 50% compared to pre-COVID, and we have basically lost a good source of income temporarily in the U.K. P&L. Our product business is now trading slightly below break-even levels. We do not foresee the market to bounce back considerably before this summer, as we still are waiting for the Asian investment in London to pick up. Social housing probably recuperating slightly before then. Also, you can see that we highlight Benchmarx here, which we exited during summer 2021, and it was an unprofitable business for us, and that's in line with strategy to exit. This quarter, it had a top line in 2020 of about 80 million SEK.
Moving over to the Nordic financials, again, Denmark, Sweden leading the growth with strong growth in both volume and average order values. Gross margin, as you see, was down in Q4, and it was heavily impacted by the high input materials and, more importantly, the higher cost for manufacturing and to secure availability of the product in the quarter. Remember that Q4 last year had a different phasing due to the pandemic, and therefore comparable margins are very high in the quarter. Just to shed some light on the twelve-month rolling basis, our gross margin and EBIT margin in the Nordics have increased by 0.5 percentage points. We believe, as stated many times now, that the extraordinary price increases done before summer will come into full effect in Q1, and thus fend off the direct material price increases.
Looking at the U.K. financials, organic sales -14%, excluding the Benchmarx business, it was down 6%. Main driver of the decline was the product business again and Magnet Retail, while Magnet Trade was growing. Gross margins were considerably up as we exit the unprofitable low gross margin business and focus on the Magnet business. We have also stayed very firm on our price increases, which have improved margins but impacted volumes somewhat. We will continue to stay firm on the price increases. We now see, as I said, most of the market moving in the same direction as we have. We have also put some additional investment behind the Magnet brand in front of the winter sales campaign during Q4. All in all, a gross margin of about almost 42% and a break-even EBIT in the period.
Over to Central Europe financials. We had a very strong Q4 last year due to the pent-up demand after the COVID lockdowns. This year, we have had opposite effect in Q4, whereas we have had lockdowns in Austria and Netherlands, which impacted both deliveries and ability to run business in a smooth way. As in the Nordics, the gross margins were burdened by higher cost for manufacturing, including direct material and costs. Due to the long order book we have had in both countries, it has taken slightly longer to get the market price through. Also here, we expect to be able to cover for the material price increases during 2022. Still a solid EBIT of 11%, SEK 40 million in the quarter with a good order book going into 2022.
Financial position, operating cash flow Q4 came in at negative 2 million SEK. The underlying operating cash flow was strong due to good working capital performance, while the majority of the fixed asset increase was related to the factory building in Jönköping, which Jon showed you a picture of. We ended the year with very strong balance sheet to support both the suggested dividend and larger investment, of course. Our financial net debt equals about 200 million SEK, and excluding pensions, we have a net cash position of about 20 million SEK. As stated, we will see higher investments coming through in the coming 2 years, mainly related to the factory building. Having said that, we are also very optimistic that we still have a lot to do with our working capital that will help to finance.
We also have a loan facility to finance the investment. With that, I hand over to you again, Jon.
Okay. Thank you, Kristoffer. As a summary at the end, going forward, we have solid order books going into 2022. There is a momentum in the business. We are increasingly building a momentum in the U.K. As both myself and Kristoffer has been alluding to, it's been a very challenging project market, and we've had challenges in the project sector. The importance now for us to build the momentum in the U.K. is focusing on the Magnet brand, and by that, one step in that is to secure a strong winter sales campaign, and the current momentum is strong. Continue to invest in the trade segment. We've had six consecutive quarters of growth, and we will continue to invest in this segment, leading with the Magnet brand.
On the back of what we just said throughout this call and previously, we will review the project business further. Going forward, we will also manage, continue to manage the material inflationary pressure, material pricing and availability. We've been able to manage that well so far, and we will continue to do that going forward. We will obviously continue to invest in multiple strategic and contemporary areas, but with the big thing obviously is being the new Nordic factory as we talked about. We do have a strong balance sheet. A strong balance sheet that can enable financing of investments, but also a proposal to increase the dividend to SEK 250 compared to SEK 2 of last year. With that, thank you very much for listening, and it's time for Q&A session.
Our first question comes from the line of Adela Dashian from Handelsbanken. Please go ahead.
Yes, good morning, everyone. Let's start with the U.K. My first question is related to the profitability in the region. If you could please explain what drove the higher operating expenses in Q4 and also how we should think about the cost base going forward into 2022?
Yeah. I take this one, Jon. The cost position was slightly higher in the quarter. We did, as I mentioned, invest a bit more in supporting the winter sales as we head on into the very important winter sales this year. Also there's a mix effect in the numbers that you have seen as a percentage of the turnover, basically. We foresee that we will have solid cost control on the business in the U.K., so we don't see any reason to have any other effect on that going forward.
Okay. Got it. If we can get some more comments related to the current state of trading in the U.K., maybe in relation to where you were at a year ago, do you feel more confident about the recovery today than you did back then? How should we think about the outlook for the region?
Again, in terms of the project market, we don't foresee any quick recovery for the London property and those sorts of things. That continues to be struggling. What we do see
We're leading with the Magnet brand and the current trading in terms of the winter sales that we're into right now, we are gaining momentum. There is a stronger performance now than a year ago, and there is a stronger performance now than two years ago.
Could you then explain why consumer and retail sales or the market in itself is flat or projected to be flat in the U.K.? I'm thinking, shouldn't there be a lot of pent-up demand now that society is reopening?
If we look at Q4 now, where we talk about the flattish environment, we must not forget that there was a bit of pent-up demand last year as we came into Q4. It's not really a retail quarter either. It's very much tilted towards the trade business. This year has been a bit affected by the COVID restrictions and the spread of the Omicron virus as well, leading people to stay more at home. I think that's probably the drivers behind the flattish development of the retail segment in Q4.
You mentioned that for the Nordic region, at least you see solid order books for 2022. Should we think of that for all regions? Do you see the same as for Central Europe, for example, or is it the Nordic region that is really driving the main momentum when it comes to overall performance for the group?
Yes.
Okay.
Yes. Yeah.
All right.
I mean, just to shed a little bit more light on this. Yes, we do see a good order book going into next year, foremost for Nordics, but also Central Europe, which, as I said, has had a lot of orders as well moved into 2022. In U.K., it's now really important with the winter sales to drive the order book. So far, we see that we have good traction with Magnet. We are optimistic about the order book going into 2022.
All right. Thank you very much.
Yes.
The next question comes from the line of Victor Hansen from Nordea. Please go ahead.
Hi, Jon and Kristoffer. Victor here. A couple of questions or a lot maybe. To start things off, how much of your pricing increases did you see take effect now in Q4, and how much more is to come? Because you started talking about the raising prices in July.
Yeah. We see a lot of price increases coming through. What hit us extra this quarter was all the production costs for what has happened with the incoming. Basically, everything has gone up even more. We will need to continue with our price increases, but we are confident that the order book looks good in terms of the prices coming through already in Q1. We should be able to fend off with a better gross margin here going forward.
It's some as Kristoffer said, availability-related costs rather than that. Also, there's direct material where we have been able early on to have price increases. It's a bit of a lag as we communicated before it goes through all the way through the order book, but it's absolutely taking effect. Then we have some additional stuff in terms of just having the availability as such. It will play out good in the Q1 , as we said before.
All right. I guess a follow-up. How confident are you that price hikes will restore the margin by Q1? Are there any dark clouds on the horizon that could hamper this?
I would say that we are quite confident. Judging by how we have communicated before about the Nordics, we know that Q4 was going to have some pressure on it. But we are confident looking into the current order books we have that the price increases are coming through. Will there be availability issues? I mean, it's too early to say, but the situation has looked much better towards the end of the quarter than what it did in the beginning of the quarter. Things like I was alluding to, the whole paint issue we had in Tidaholm, for example, seems to be improved. There are other supplies as well that are much improved compared to Q4. We are optimistic about that.
You know the situation in the market and the supply chains that are really still affected about it. Of course, there is also uncertainty in it.
We are humble, but we've managed so far. If anything, the situation is likely better now than it was, a couple of months back.
All right. A follow-up on a previous question. The U.K. costs, which are hurting the margin, is this mostly temporary marketing costs related to the winter sales? Or, how should we view this and how much?
It's partially related to winter sales. It's partly related to strengthen the Magnet brand proposition as we also said back in Q3. We have put more money behind the brand, really. We don't expect that the run rates will increase as an effect, but rather stabilize in the quarters to come. Yeah.
Stabilize versus Q4, so this is not temporary? The higher costs are reflected in the run rate now?
No, the opposite.
Okay.
We were tracking a little bit higher cost in Q4.
Okay
Towards the end of Q3 to drive the winter sales and to build the Magnet brand in a better way. Now we don't rule out that we will spend in the future a little bit more marketing to further drive the trade business. We will do that in a prudent fashion and follow the top line, so spend to revenue in that sense.
All right. Great. You previously talked about moving all the U.K. production to Darlington. How is this going?
I need to ask when was that?
I think it was Q2 2020.
No, I think what you're
When you did the restructuring.
Yeah, I think what you're referring to is moving the, not all manufacturing to Darlington, but moving the project business manufacturing to Darlington, which we basically have done. What we're looking for now is we still have our factory at Dewsbury, which manufactures the product business, running with very tiny volumes, and we will keep that factory for the increase in volume that we expect when the markets recover and when the push we do in Magnet Trade now will deliver higher volumes. Right now it's more or less a small crew just running in that factory with very small volumes.
So there is-
The rest has moved to Darlington.
Yeah, that's the component manufacturing is now in Darlington. There is assembly activities going on in Dewsbury, which is now being fully supporting the project business. That's happening-
Right
with slim volumes as we speak, but facilitates room for growth.
If you could quantify the negative impact from the lockdowns in Austria.
We cannot put a number on it. It's clearly so that we would have dispatched more if we didn't have the situation, and now the order book has moved forward, so it's not lost money, so to say. Again, I think we do a very solid result in Austria and the Netherlands given the situation that we had, and also given that it was very hard comparables last year.
Yeah. Just two more questions from me. Thank you for answering all of these questions. Jon, you touched upon M&A earlier in your presentation. Should we again expect any larger M&A ahead or just a bolt-on similar to Superfront in size?
The simple answer to your question is rather the later bolt-on.
Okay.
We're not looking for any major acquisitions as we speak at that, in that sense. We have a very exciting agenda in terms of the Tomorrow Together strategy with the new factory in the Nordics, focusing on the Magnet brand, and there are product introductions. There are multiple things that we have in our agenda, driving positioning us and in order to drive growth and efficiency. I think that is in itself a very exciting agenda with lots of activities, and that is our focus. On the Superfront, when these type of opportunities arises, that's really that is very exciting for us to take on. That was a, for us now, Superfront was a good opportunity.
It builds on the strategy being more of mass premium, mass customization type of thing to have an even stronger offering in the retail sector or consumer sector, but also enabling us to connect with the consumers in a digital fashion in an even better way. So that type of acquisitions are interesting for us. So this bigger thing is not as a big part of the strategy as it used to be some several years back. It is because we have very exciting, very strong initiatives that will build value and will build and strengthen our business the next couple of few years, and that's where we have our focus. Great.
Just a final question from my side, and I think this one is to Kristoffer. You mentioned working capital releases, earlier. Could you quantify the potential going forward here?
I can't quantify the potential, but you have seen from our historic numbers lately that we've had a pretty good performance within working capital, and we have found a lot of new opportunities which we will drive continuously going forward. As for the moment, I would not like to put a number on it, so to say.
All right. Thank you. That's all for me.
Thank you.
The next question comes from the line of Sofia Sörling from Carnegie. Please go ahead.
Thank you. Hello, everyone. Let's kick off with a more of a high level question. In the U.K. market, do you believe it's possible to go back to the pre-pandemic level in the U.K.? Or you believe now that the business climate has changed here and, changed for Nobia going forward?
As we said, we've done some things like exiting the Benchmarx business to strengthen the overall profitability. Now we are hit with a lack of demand in some of our project sectors, which is obviously hitting our profitability. We are investing, leading with the Magnet brand. We've had growth in the trade segment. We are coming with more of really interesting consumer offerings as well in terms of new product and color and those sorts of things. We expect profitability to recoup step by step in the next, let's call it, in the midterm. We will improve. We will get back to the profitability, and we will have a stronger core in our business. We're also looking forward to drive to put in.
These initiatives that we put in place, obviously it will take some time before they really take off, all of them, but we also anticipate better growth leading with the Magnet brand with profitable business.
We don't see any big structural differences between the U.K. market and the Nordics market, so to say. It should be possible to get margins back to previous U.K. Nobia margins, but even more so getting closer to the Nordic levels long term as well.
All right. Thank you.
It's been some interesting couple of years in this market, if I put it that way.
Mm. Okay, so-
We, we'll get there for sure.
Okay, I see. If going back then to the pre-pandemic levels, what are you mostly waiting for to happen in the U.K. market? Also, since you mentioned the margins, would you say that you're more negatively impacted by cost inflations in the U.K. region compared to the other market regions?
No, no, we're not more impacted in the cost inflation in the U.K. than in the other markets. That's one. It's on and off and having the retail network or a store network being closed and open and closed and open, that has been one-
Mm.
One piece which has made it challenging. The demand side on the profile that we have in our project portfolio has been challenging. But we do. You know, maybe that's not gonna happen next week, but in a little bit of time, we do believe that things, the macro environment, if I put it that way, will stabilize a bit more. That with the efforts we're now putting into the Magnet brand, we believe that we put ourselves in a position for profitable growth.
All right. You mentioned the trade segment has grown quarter- by- quarter for the last 6 quarters. Can you quantify that? Do you have any growth quarter- by- quarter of that segment that we can see that actually this one is growing much faster than the other segments in the U.K. region?
If you listen back to the other communications we have done, you can. We often comment whether we have had the double-digit, single-digit growth in the trade segment. This quarter here in Q4 was single-digit. We expected a bit higher growth, but in terms of pricing for the rest of the market, it was quite hampered actually. The volumes are still good, and it's a field for us to invest further in as we have stated.
All right. Okay, thank you. Also, you mentioned before that you were experiencing at the end of 2021 with the shortage of installers and drivers in the U.K. Would you say that this is still the case at the beginning of 2022?
That situation looks much better, and.
Much better.
Some people. Yeah.
I'm sorry, we're not in the same place.
Yeah.
Go ahead, Kristoffer.
That's good. Yeah, that situation looks much better. Also to remember, I mean, winter sales is the most important sales period for retail in the U.K. market. We have not-
Mm.
been able to do that for two years because the store.
Mm.
Network has been closed or on and off closed for the last two years.
Mm.
We're really looking forward to this year where, you know, knock on wood, it will be kept open and, we have a good momentum. It has been some really strange last two years.
I see. Regarding the winter sale, could you quantify that in some way, how successful or how good momentum you have, currently compared to last year?
Well, we typically don't comment that. We have a strong momentum.
All right. Great. The Nordics, maybe you answered this before, but, can you give us the split between the price increase and the volume increase of the organic growth?
We would not like to give the split on that, but what I can say is that we are growing in both volume and price.
All right. The upcoming price increases, could you give us some quantified level of what this could entail? Is it 2%, 5%, 7%?
Well, what you have seen is the incoming raw material cost inflation and that's market information, right? What we need to do is to make sure that our price increase covers that. I think we've done a really good job during the summer last year. Prices continued to go up during fall. As every year, we have price increases during the year-end, which now will also have an effect. I don't like to go more into detail on our price increases as such.
All right. Yes, I think I have no further questions. Thank you for answering.
Thank you.
Thank you.
We have one more question from the line of Fredrik Morgårdh from Pareto Securities. Please go ahead.
Good morning, everyone. Just coming back to cost inflation and price increases, I was hoping you could shed some light on your visibility when it comes to cost inflation, particularly on, you know, appliances, steel, wood-based products, and so on. Have you entered any contracts for any of those items, or are you buying spot prices? Just to get a sense of sort of the sensitivity to any future changes in those prices.
Obviously, we cannot go into details on contractual arrangements and so on, but let's put it like this, that the contracts are shorter now than what we have seen historically. There are some contracts that we have are based on retail price that the supplier is setting to the market. I mean, typically, this is appliance business or so forth. It would be very easy for you to see also on the market prices for that. But it's clearly so that it's been an inflationary pressure in basically all parts of the business, I would say.
Sure. A follow-up, because I mean, appliances, I mean, appliances makers have been raising prices throughout 2021. You made one significant hike during the summer. They're signaling further price increases here starting early 2022. I guess you're seeing continued acceleration on those prices. You're saying you're looking at additional price increases, but it's only now that you're getting actually full compensation from the price increases you had last summer. Is there any reason for why these new price increases should come through quicker or will you have full effect from additional hikes only sometime during the fall?
No. If you look. You go ahead, Jon. Yeah.
I think it's, you know, taking one step back, we were early out of the blocks, putting price increases into place to cover for inflationary pressures when we saw that. It has taken an effect. There was a bit of a lag in some of our longer contracts and those sorts of things. We will cover fully in the Q1 . In that sense, now everybody understanding this situation, we can see other players in the industry now later coming with price increases, which I think is interesting. In that sense, we were early on. We have and are continuously looking at this pricing situation and put prices into place. We have these particular windows where, you know, there's better opportunities for us.
I don't foresee that we will need to wait until November before we see the effect of the price increases that we are initiating at this stage, as you were alluding to.
Just to add to that, I mean.
If I put it that way.
To add to that, about one-third of our purchases are bought in goods, and those price increases on those are immediately passed on to the market also through us. So there's no lag in that. The lag is really where we have manufacturing of the kitchen component, so to say, and an order book that has been quite long for the product business and some extent for the retail business. And this is just to emphasize that this is just in line with what has been communicated from us all along that Q4, we will see the last differential in between price increase and what we get through in terms of own cost. And we are confident about being able to to mitigate the direct material cost in Q1.
I think what has come in addition in Q4 is the availability issue, which has been worse than what we expected going into the quarter in certain areas like paint, for example.
All right. A final question when it comes to pricing, because I mean the kitchen business in general, at least on the retail side, is you know sort of a discount or negotiation price when it comes to selling kitchens to consumers. Maybe you can tell us a little bit about what you've been seeing on the discounting side over the past year, how that has developed. Have you benefited from a tight market, i.e. less discounting to consumers, or has discounting moved in the opposite direction? Is that a worry for you going forward?
We have been able to, let's put it, to keep our pricing. It's been important from my side, from our side, to make sure that we protect the gross margin as best as we can. We put some pricing rigor in the U.K., for example, in that sector. We are managing pricing and discounting in a better way. As Kristoffer was alluding to earlier, there were a moment in the market where some people were working also with pricing and, but we stayed with our pricing and have a better rigor, even better rigor in terms of the discounting than we had before. I anticipate that we are able to keep our pricing in a good way also going forward.
All right. Thank you very much.
As there are no further questions, I'll hand it back to the speakers.
Well, thank you very much, everyone, for calling in, for listening in. We welcome you all back on the fifth of May for the Q1 numbers. Thank you.
Thank you, everybody.
Thank you all for attending. You may now disconnect your line.